German regulator: "no euro zone bank watchdog until 2014"

Published October 09, 2012

| Reuters

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FRANKFURT – Plans to establish a euro zone bank regulator by January 1, 2013, may be pushed back by around a year, Germany's markets regulator said on Tuesday, in a move that could delay efforts to help distressed banks.

European leaders agreed at the end of June to set up a single supervisor to oversee 6,000 banks in Europe, but Elke Koenig, head of Germany's markets regulator BaFin, said the original deadline to start such supervision was unrealistic.

"I could imagine that we get there in January 2014. That's a guess," she told German television station ARD on Tuesday, adding this was her personal view.

The European Commission hopes that tighter surveillance of banks by the European Central Bank, the creation of a fund to wind up troubled lenders and a common pan-European guarantee for depositors will restore confidence in the region after five years of financial crisis.

Germany, the euro zone's economic heavyweight, has criticized plans to allow the ECB to supervise all euro zone lenders, claiming the central bank will be overstretched if it has to monitor all 6,000 euro zone banks, including its state-owned Landesbanken.

In reality, the ECB will not be in day-to-day charge of supervision, which will still lie with national and local regulators. But the ECB will likely leave national supervisors with less wiggle room to adopt special rules designed to protect their home market.

Germany's Landesbanken, for example, are currently allowed to keep using a special form of non-voting capital as a way to fulfill tougher safety rules.

European Central Bank president Mario Draghi on Tuesday clarified the timetable for creating a new supervisor.

"The ECB is not supposed to take over supervision in three months' time and do it. There is a phase-in time. We foresee that one year will be needed to adapt all the structures," Draghi told the European parliament.

European Union leaders agreed that unified supervision is needed to allow the euro zone to directly recapitalize banks via the European Stability Mechanism (ESM).

Allowing direct recapitalization of weak banks is seen as a way to break the vicious circle linking indebted governments and their troubled lenders.

In September the European Commission outlined a plan for handing over supervisory responsibility to the European Central Bank (ECB).

As a first step, the ECB is set to take responsibility for supervising banks which have received state aid beginning 2013. From mid-2013 the ECB will add systemically relevant institutions, before finally overseeing all euro zone banks by 2014.

Upon being asked whether a January deadline for Euro zone bank supervision was realistic, The Bank of France, the Bank of Spain and the Bank of Italy declined to comment.

Gerard Rameix, head of the French markets watchdog AMF, on Tuesday said he had heard nothing to suggest there would be a change to the timeframe. "I think they are playing on words a bit. If they are talking about the utmost end of the process, then they are maybe not wrong," Rameix said.

Late on Tuesday Koenig said that although she supported the idea of common supervision in principle, she hasn't understood how the transition from national to pan-European supervision will work in practice.

"I support the idea of a strong European regulator. But I have not seen a roadmap of how we get there," she said.

"The last thing we can afford is to have an interregnum between those who are no longer responsible and those who are not yet in a position to act," Koenig said.

Earlier this month, European Central Bank policymaker Joerg Asmussen warned that tapping the euro zone's permanent bailout fund (ESM) for direct bank recapitalization - for which the new bank supervision mechanism is a pre-requisite - will only be possible once supervision was properly set up.

Last month, Germany, the Netherlands and Finland insisted that the ESM should not be used to solve "legacy issues", essentially saying that highly indebted banks in Spain, Ireland and Greece will remain the responsibility of those countries' governments.

Germany has repeatedly clashed with Brussels over plans to give the European Central Bank (ECB) new banking supervision powers, and over plans to set up a common deposit guarantee scheme.

Earlier this month The Basel Committee on Banking Supervision said the EU was failing to apply Basel III bank capital rules because it softened up a definition of what can be used as core capital.

Basel III says it must be common shares while Germany has pushed hard to include what some regulators see as less proven financial instruments which are widely used in the German public sector banking arm of Landesbanks.